Invention Protection and Economic Development Japan Patent Office Asia-Pacific Industrial Property Center, JIII ©2011 Collaborator: Shin-Ichiro Suzuki, Patent Attorney, Visiting Professor, Tokyo University of Agriculture & Technology (TUAT) Table of contents Introduction 1. Invention Protection and Economic Theory 2 1.1 Theories of Invention Protection 2 1.2 Economic Growth Theory and Technological Progress 10 1.3 New Growth Theory and Invention Protection 12 1.4 How the Invention Protection System Works 14 2. The Historical Development of Invention Protection Policies 23 2.1 The Emergence of Invention Protection Systems 23 2.2 Encouraging the Development of Advanced Technology Through Invention Protection Policy 25 2.3 Invention Protection Policy and the Industrial Revolution (Britain) 27 2.4 Encouraging Innovation by Entrepreneurs (U.S.) 29 2.5 A Systematic Innovation Policy (Germany) 35 2.6 International Invention Protection Policy 44 3. The Experience of the Japanese Economy 45 3.1 Background to the Success of Invention Protection Policy 45 3.2 Developing Entrepreneurs 45 3.3 Raising Awareness in the World of Industry of Invention Protection 47 3.4 An Economic Recovery Policy Based on the Introduction of Technology 50 3.5 Promoting Japanese-Style innovation 52 3.6 Policies to Strengthen International Invention Protection and Make Japan a Nation Built on Intellectual Property 55 4. Conclusion 58 *********** Invention Protection and Economic Development (2010) Invention Protection and Economic Development Shinichiro Suzuki Introduction Nowadays, intellectual property issues are of interest not only to legal specialists, but also to experts in a wide range of other fields such as technology, economics, and education. Even controversy concerning the necessity of the patent system, which was once the subject of fierce debate between lawyers and economists, is now becoming confined to certain technologies and organizations. Although this textbook examines the economic significance of invention protection under the patent system, it does not attempt a theoretical analysis from an economics perspective. Its objectives are to introduce the debate up to now concerning the economic significance of the patent system and examine how this system has been used to meet policy goals, as these are matters that those involved in the promotion of intellectual property rights ought to understand. Please note that the various views described within are those of the writers of the papers cited. They do not express the official views of the Japan Patent Office. 1 Invention Protection and Economic Development (2010) 1. Invention Protection and Economic Theory 1.1. Theories of Invention Protection 1.1.1. The Views of Early Economists Invention protection systems1, which confer monopoly rights to the originators of new ideas for a limited period of time, can be traced back to the Greek colonial city of Sybaris in 500 B.C. In this city, the developers of new food preparation methods were awarded a one-year monopoly. In the 12th-15th centuries, this system began to be used as a policy tool in the city states of Italy, and later spread to the rest of Europe. Many of these early invention protection systems involved the individual conferral of privileges (invention privileges) by the government, parliament, or monarch. The various privileges possessed by monarchs and feudal lords had long been recognized as inalienable rights, but the Puritan Revolution and Glorious Revolution in the 17th century led to a rejection of royal authority. At the same time, calls for free trade grew and economists began to debate the rationality of free trade. Adam Smith, in An Inquiry into the Nature and Causes of the Wealth of Nations, which was published in 1776, argued that monopolies were inevitably harmful, but that temporary ones may be vindicated as a way of recompensing inventors for the risks they have borne and the expenditures they have made.2 John Stuart Mill, in Principles of Political Economy, which was published in 1848, claimed that the “the condemnation of monopolies ought not to extend to patents.” He argued that “the originator of an improved process is allowed to enjoy, for a limited period, the exclusive privilege of using his own improvement,” and that inventors should be both compensated and rewarded.3 1 To avoid confusion with the debate on property rights, which is described later, the use of monopoly rights such as patents to protect human intellectual creations is referred to here as “invention protection.” 2 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, W. Strahan and T. Cadell, London (1776), Book V, Chapter 1, Part III “When a company of merchants undertake, at their own risk and expense, to establish a new trade with some remote and barbarous nation, it may not be unreasonable to incorporate them into a joint stock company, and to grant them, in case of their success, a monopoly of the trade for a certain number of years. It is the easiest and most natural way in which the state can recompense them for hazarding a dangerous and expensive experiment, of which the public is afterwards to reap the benefit. A temporary monopoly of this kind may be vindicated upon the same principles upon which a like monopoly of a new machine is granted to its inventor, and that of a new book to its author.” 3 John Stuart Mill, Principles of Political Economy (1848), Book V Chapter X “The condemnation of monopolies ought not to extend to patents, by which the originator of an improved process is allowed to enjoy, for a limited period, the exclusive privilege of using his own improvement. This is not making the commodity dear for his benefit, but merely postponing a part of the increased cheapness which the public owe to the inventor, in order to compensate and reward him for the service. That he ought to be both compensated and rewarded for it, will not be denied, and also that if all were at once allowed to avail themselves of his ingenuity, without having shared the labours or the expenses which he had to incur in bringing his idea into a practical shape, either such expenses and labours would be undergone by nobody except very opulent and very public-spirited persons, or the state must put a value on the service rendered by an inventor, and make him a pecuniary grant. This has been done in some instances, and may be done without inconvenience in cases of very conspicuous p ublic benefit; but in general an exclusive privilege, of temporary duration, is preferable; because it leaves nothing to any one’s discretion; because the reward conferred by it depends upon the invention’s being found useful, and the greater the usefulnes s the greater the reward; and because it is paid by the very persons to whom the service is rendered, the consumers of the commodity.” 2 Invention Protection and Economic Development (2010) Voices opposed to invention protection were also heard. France’s Simonde de Sismondi argued that the award of privileges to inventors would allow them to corner the market. As a result, while inventors would enjoy extremely large profits, consumers would gain very little from their inventions. Moreover, other producers would relinquish profits, and their employees would lose their jobs.4 1.1.2. The 19th Century Anti-Patent Campaign The 19th century saw invention protection systems, which had hitherto been limited to certain parts of Europe, spread throughout Europe and beyond to the Americas and the Asia-Pacific region.5 Monopoly rights in different countries sometimes became trade issues, and the view that invention protection systems obstructed free trade began to be articulated. Even in countries that had already adopted invention protection systems, there were cases where the system was not being implemented properly and situations in which it was having negative effects. As a result, the very idea of an invention protection system itself became a subject of debate, which manifested itself in a virulent anti-patent campaign that lasted from 1853 to 1883. In Britain in 1851, the British Parliament and a royal commission began studying the operation of the patent system. After the completion of several studies, a reform bill was drafted to shorten the period of validity to seven years, implement a rigorous screening system, introduce a licensing system, and so on. This bill was approved by the House of Lords in 1872. In Germany, meanwhile, a customs union came into being in 1832 with the participating nations concluding an agreement on common principles concerning invention patents and privileges.6 This pact was aimed at eliminating as many restrictions on free trade between the states as possible. However, because the customs union included cities from the Hanseatic League, which had not had systems for protecting inventions, its members did not really move forward in a common direction. In 1863 the German Economic Association issued a statement declaring that patents harmed the general welfare. In the Netherlands in 1854, the Dutch Industrial Promotion Commission issued a report pointing out problems with the Dutch patent system at the time. Debate concerning these problems continued, and the system only survived until 1869, when a bill to scrap it was passed.7 4 From J.C.L Simonde de Sismondi “Neouveaux d’Economie Politique ou de; a Tichesse dans ses rapport avec la population (Paris: 2nd edition 1827, vol. II pp.334-335 (F. Machlup “An Economic Review of the Patent System” (1958) 5 Various studies have been conducted on the timing of the introduction of patent systems, and the generally accepted dates are as follows: Britain 1643, the Netherlands 1575, the U.S. 1790, France 1791, Austria 1810, Russia 1812, Prussia 1815, Spain 1820, Sardinia 1820, Bavaria 1825, Brazil 1830, Vatican City 1833, Sweden 1834, Portugal 1843, Chile 1840, Argentina 1841, New South Wales (Australia) 1852, and India 1859.